Tax Deal Suggests New Path for Obama

Published: December 6, 2010

The size of the compromise package, roughly half of which came from extending all the Bush tax rates for two years, roughly paralleled Mr. Obama’s initial $800 billion package of stimulus spending and tax cuts in early 2009 — only this time with Republicans’ tentative agreement.

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While the plan’s price is likely to provoke some opposition, administration officials and many economists, including Ben S. Bernanke, the Federal Reserve chairman, have been calling for additional short-term deficit spending to help stimulate the economy and create jobs, even as they argue for longer-term action to address the debt.

The report last week by the president’s debt-reduction commission proposed a payroll tax break, while a separate plan from a bipartisan group led by former Senator Pete V. Domenici and Alice M. Rivlin, a former Congressional and White House budget director, proposed a one-year payroll tax holiday for all of an employee’s Social Security payroll taxes, at a cost of $650 billion. And two plans from liberal groups released last week would spend hundreds of billions of dollars for public works projects and other job-creation programs.

Senator Jon Kyl of Arizona, who represented Senate Republicans in the formal negotiations on the tax plan, said he would have preferred a permanent extension of all of the Bush-era tax breaks. But Mr. Kyl also expressed satisfaction with the preliminary agreement, given that Democrats control big majorities in the House and the Senate.

“Tonight’s announcement marks an important first step in giving all American families and businesses the certainty that their taxes will not increase on Jan. 1,” Mr. Kyl said in a statement. “While I wanted the rates to be made permanent, the current political makeup of this lame-duck Congress would not allow that. What is important now is that we avert a massive tax increase that would further depress an already frail economy.”

Mr. Kyl, along with Senator Blanche Lincoln, Democrat of Arkansas, was a chief architect of the version of the estate tax in the agreement with Mr. Obama. Other Senate Democrats are likely to be receptive to the proposal. The estate tax lapsed this year, but was scheduled to return on Jan. 1 with an exemption of $1 million per person and a maximum rate of 55 percent.

Republicans who deride the estate levy as the “death tax” have long sought to eliminate it.